- Posted by Brad Bridgewater
- On December 21, 2016
- budget, planning, spending, tracking
The holiday season and the approach of a new year often bring about resolutions to make improvements in our daily lives – healthy eating, spending more time with family, or exercising on a regular basis. One of the most common goals is an improved financial situation.
For some, that means spending less and saving more, while for others it may mean a career change or finding a source of additional income. Unfortunately, some resolutions don’t last beyond January. But if you want to improve your financial outlook in the New Year, setting a budget and sticking to it is the surest way to get there.
SET REALISTIC SHORT-TERM AND LONG-TERM GOALS
Every good budget begins by making a list of goals that are realistic and attainable. You’re far less likely to stick to a budget if you feel resentful or deprived of your money. Equally important is setting specific long-term and short-term goals. It’s not enough to say that you want to be debt-free in five years. You have to create a plan to get there, such as calculating the amount of debt you must pay off per month and figuring out whether your current income is enough to cover it. Determining how much you need to make and save within a stated time frame will help you set solid goals and provide the foundation for a budget you can live with.
KNOW YOUR INCOME AND TRACK YOUR SPENDING
Once you’ve determined your budgetary goals, you need to examine several aspects of your finances. These include knowing your income and tracking your spending. It’s relatively easy to determine your annual salary, but there are many considerations that may not be so obvious. You need to account for federal, state, and local taxes, along with other deductions like health insurance premiums and 401(k) contributions. Start with your take-home pay and the liquidity of your assets as a basis for your goal-setting.
Read any article on budgeting and you’ll find anecdotal tales of individuals who “found” hundreds or even thousands of dollars they never even realized they were spending. Tracking your spending and expenses is crucial to setting a successful budget. Some people do this by saving receipts, keeping a notebook or spreadsheet, or even using cash only for a limited period. Most of us would be surprised at the seemingly insignificant expenditures that add up over time. Simply put, you can’t create a meaningful budget unless you know exactly how much you spend and where you spend it.
CREATE A PERSONALIZED PLAN
As with your retirement and investment strategies, an effective budget requires a personalized plan. One reason so many people struggle with creating a successful budget using the numerous books and how-to guides on the subject is that one size does not fit all. For example, while their overall goals may be similar (financial independence, paying off debt, or savings for your children’s higher education), the pilot who is just beginning his career will have a significantly different approach (no pun intended!) than one who is nearing retirement. You will be much more likely to succeed if you create a plan based on your personal goals and resources versus a generic budget that doesn’t fully address your unique needs.
STAY ACCOUNTABLE TO YOUR BUDGET
There are a variety of software packages that can help you plan and organize your budget. A professional advisor who is familiar with all aspects of your financial life can also provide invaluable guidance. Once you’ve articulated your goals and created a custom plan, it is essential to hold yourself accountable to your budget. Monthly check-ins in which you compare spending, saving, expenses, and income against your plan help ensure that you stay on track and actually reach your goals. Perhaps the most beneficial thing about having a budget is the mindfulness it brings to the way you handle your money – thinking twice about expenditures helps you make better financial decisions.
For help setting your own short and long-term budgeting goals or to discuss ways, you can improve your financial situation, request a call with an advisor at RAA.